Customer segmentation based on transactional data using stream clustering

Abstract

Customer Segmentation aims to identify groups of customers that share similar interest or behaviour. It is an essential tool in marketing and can be used to target customer segments with tailored marketing strategies. Customer segmentation is often based on clustering techniques. This analysis is typically performed as a snapshot analysis where segments are identified at a specific point in time. However, this ignores the fact that customer segments are highly volatile and segments change over time. Once segments change, the entire analysis needs to be repeated and strategies adapted. In this paper we explore stream clustering as a tool to alleviate this problem. We propose a new stream clustering algorithm which allows to identify and track customer segments over time. The biggest challenge is that customer segmentation often relies on the transaction history of a customer. Since this data changes over time, it is necessary to update customers which have already been incorporated into the clustering. We show how to perform this step incrementally, without the need for periodic re-computations. As a result, customer segmentation can be performed continuously, faster and is more scalable. We demonstrate the performance of our algorithm using a large real-life case study.